EU state aid
Thirdly, one of the biggest blockers to making changes to EIS and SEIS has always been EU State Aid. Both the EIS and SEIS schemes come under EU State Aid, meaning any changes to legislation the UK Government wishes to make to the schemes must be ratified by the EU before they become UK law. This ensured that the UK couldn’t use subsidies to give British businesses an advantage and undercut other EU countries. Under the Brexit deal, the UK will be able to set its own rules albeit we will need to create a body (think UK State Aid) to oversee its own subsidy control regime. There is still a lot of discussion taking place about what this will ultimately look like but it should give the UK slightly more control over the legislation affecting EIS and SEIS. It means that we will not need to run to Brussels every time we desire to amend the schemes in some way or form. Perhaps more importantly, it also means we won’t be subject to legislation imposed by the EU and over which we have no say. This means the shackles come off somewhat potentially which allows for quicker and far-reaching changes to take place should that be deemed to be politically and economically advantageous.
Lastly, over recent months, we have seen the pandemic get worse rather than better. As I write this, as a nation, we are back in lockdown. Clearly, this has a huge, detrimental knock-on effect to the economy. Therefore is this time to be making sweeping, wider-ranging tax rises and cuts to reliefs? Probably not. Be in no doubt that time is coming and collectively we will all need to pay for the extremely expensive but very necessary financial support measures the Government have put in place over the last year. The pandemic may (fingers crossed) be slowly drawing to an end but the economic pain and misery are only, I fear, just beginning. So, the mood music seems to be that this Budget will be a fairly benign one but be aware of the next one!
Clearly, I can’t end this article on such a downbeat note so let’s look more positively. Confidently, I predict that EIS and SEIS are in good health and not currently in the Government’s crosshairs. I say that because it’s important to remember the purpose of the schemes and who they ultimately benefit. And that is to provide early-stage businesses with access to equity funding that they would otherwise not be able to access. The Government believes that this is funding that both they and traditional funding sources are unable or unwilling to supply so they turn to private investors to bridge this gap and motivate them to do so through tax reliefs. The Government isn’t particularly interested in the investor. It is early-stage businesses which are their concern and every statistic and piece of data show very clearly that this sector is currently under-funded. It’s not in the Government’s interests to withdraw the schemes at this time and would actually be counter- productive.
So, please talk to your clients with confidence about EIS and SEIS. Many of today’s huge companies started out a time of economic crisis (think Airbnb, Uber etc). There are exciting investment opportunities out there and I can confidently predict that a tech titan of the future will be British and EIS or SEIS funded.
About Mark Brownridge
Mark has over twenty years’ experience in financial services and prior to becoming Director General of the EIS Association, he was Head of Research and Development at Mazars, a leading UK financial planning firm. Mark is highly qualified being a Certified Financial Planner, Chartered Financial Planner, Chartered Wealth Manager and Fellow of the Personal Finance Society and also sits on the Chartered Institute of Securities and Investments Accredited firms committee and TISA’s Distribution Policy Council. Mark’s involvement with EIS began 8 years ago and he has since championed EIS investing within a financial planning context and is extremely passionate about promoting the industry, increasing its effectiveness and ensuring the private sector continues to drive much needed funding to small companies.